JPMorgan: These Asian stocks are superior to their peers when it comes to ESG

Published Thu, Jan 27 20227:06 PM EST

JPMorgan and Credit Suisse have named a raft of stocks they think will benefit from the rapid growth of sustainable investing in Asia, as countries around the world double down on their climate change commitments. Market participants are increasingly seeking to invest in stocks based on "environmental, social and governance" factors — also known as ESG or sustainable investing. The third quarter of 2021 saw a record $15 billion of inflows into Asian sustainable funds, Credit Suisse's analysts, led by Phineas Glover, said on Jan. 19. They expect inflows to remain strong this year. Assets under management in these funds also increased significantly over the same period, to hit around $120 billion, Glover added. Increasing numbers of new funds have sprung up in response, with JPMorgan noting that 100 Asia ex-Japan ESG funds were launched in 2021, up from just 46 in 2020. Despite this growing interest, however, many sustainable stocks have had a particularly tricky start to 2022 , as investors weigh the possibility of imminent interest rate hikes from global central banks. JPMorgan's stock picks On Jan. 19, JPMorgan's Elaine Wu published a list of Asian stock ideas that she said have "superior environmental, social and governance (ESG) against sector peers." It includes industrial firm Brambles and retail conglomerate Wesfarmers in Australia. Chinese automaker Geely , Bank Rakyat Indonesia , insurer AIA , Taiwanese chipmaker Taiwan Semiconductor Manufacturing Company , Chinese pharmaceutical firm Wuxi Biologics and South Korea's Lotte Chemical also made the bank's list. Among Japanese equities, JPMorgan named automaker Denso among its "top stock ideas," along with electronics and imaging firm Ricoh , air-conditioning company Daikin and insurer Tokio Marine . All of the above stocks are buy-rated by JPMorgan analysts. Credit Suisse's stock picks Meanwhile, Credit Suisse outlined a number of long-term structural themes it thinks will dominate ESG investing in the year ahead. The bank expects carbon prices to continue their rise in 2022, driven by long-term climate policy in the European Union and China, as well as corporate net-zero ambitions. The bank said the EU's Carbon Border Adjustment Mechanism (CBAM) will accelerate the carbon transition and drive higher capital expenditure in the sector. If approved will force EU businesses to pay a carbon levy for goods they import from outside the bloc . As a result, China, Japan, South Korea and India will need to aggressively decarbonize steel to remain competitive exporters to the EU, Glover said. The bank's basket of beneficiaries include renewables such as Longyuan Power , Xinyi Solar, and EDP ; steel manufacturers such as Nucor , Steel Dynamics , Hyundai Steel and Caterpillar ; as well as a raft of other related stocks such as Air Liquide , Air Products & Chemicals , Emerson and PetroChina . Credit Suisse noted that the the transition from coal to gas as a primary fuel will be a key tenet of the EU's carbon pricing rules, and benefit stocks such as TC Energy , Woodside Petroleum , Petrobas and Cheniere Energy . Meanwhile, China's commitment to reach carbon net zero by 2060 will also create opportunities for a host of stocks. "[New energy vehicles] and renewable energy value chains will continue to be strong beneficiaries," Glover said, with "top battery makers capable of further market share gain." The bank's list of beneficiaries includes automakers such as BYD , Nio , Xpeng and Li Auto , as well as battery manufacturers such as Ganfeng Lithium , Tianqi Lithium . Another theme highlighted by the bank is carbon capture and storage (CCS), which it said will be an "essential" part of the transition to net zero. Its top picks in this space include PetroChina , Huaneng Power and Datang International . All of these stock picks are rated overweight by Credit Suisse.

A television camera stands in front of a screen displaying the COP26 logo on November 06, 2021 in Glasgow, Scotland.

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